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The
OECD's forecasts are less optimistic than those of the German
government, which expects growth of 1.3% and 1.5% in 2024 and
2025, respectively.
A constitutional court ruling nearly two weeks ago blocked the
government's plans to reallocate unused pandemic funds to green
initiatives and industry support, raising fears Europe's largest
economy could be further weakened.
"It is crucial to resolve the budget crisis as quickly as
possible in order to give companies and households planning
security and confidence in the future," OECD economist Isabell
Koske told Reuters.
She said a solution should include cuts on the expenditure side,
increases on the revenue side and a reform of the debt brake,
which sets a limit on new borrowing.
The uncertainty created by the court ruling about funding
policies to support firms and workers during the green
transition could weigh on investment and private consumption,
the OECD warned.
"If more fiscal tightening is needed to sustain the spending
plans of extra-budgetary funds, GDP growth and inflation will be
lower," the OECD said.
The German economy is expected to shrink by 0.1% this year, as
high interest rates weigh on global demand for investment goods,
which make up a large share of German exports, the OECD said.
The government expects the economy to contract by 0.4% in 2023.
"The German economy is certainly going through a difficult
phase," Koske said.
In the coming two years, however, falling inflation and rising
wages will support real incomes and private consumption, the
OECD said.
Tighter monetary conditions, fading energy price pressures and
fiscal tightening will help to bring down inflation from 6.2% in
2023 to 2.7% in 2024 and 2.1% in 2025, it forecast.
(Reporting by Maria Martinez and Rene Wagner; Editing by Mark
Potter)
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